Health care reform COBRA rules bridge public exchange coverage gap

Recent federal guidance allows employees who lose their group health coverage when they leave or lose their job to get health insurance through public exchanges sooner and with no gaps in coverage by temporarily enrolling in COBRA.

The COBRA guidance, included in 436 pages of Patient Protection and Affordable Care Act regulations issued last month by the U.S. Department of Health and Human Services, addresses the health care reform law's requirement that those enrolled in COBRA wait until the next open enrollment period to move to coverage through a public health insurance exchange.

The wait can be costly because COBRA enrollees typically pay the full group premium to continue coverage through former employers. In 2013, for example, the average annual premium for employer plans was $5,884, or about $490 per month, for individual coverage and more than $16,300, or about $1,350 a month, for family coverage, according to a Kaiser Family Foundation survey.

Coverage through a public exchange, though, can be substantially less.

According to an HHS report last week, enrollees in 36 states in which the federal government operates exchanges paid an average of $82 a month for coverage due to federal premium subsidies for lower income individuals. Without the subsidies, the enrollees would have paid $346 a month.

Exchange coverage “can be a much better deal” than COBRA, said Elizabeth Vollmar, vice president and co-director of compliance services at Lockton Cos. L.L.C. in St. Louis.

But individuals can't get exchange coverage right away. Federal rules say for people who lose employment-based coverage, public exchange coverage cannot begin until the first day of the month following enrollment — resulting in a coverage gap, which the HHS guidance eliminates.

Under the regulations, individuals who lose employment-based coverage could opt for COBRA and, within 60 days, enroll in a public exchange plan. Once the exchange plan goes into effect, HHS said the individual could end COBRA coverage.

An example, provided by Buck Consultants L.L.C., illustrates how this interplay can work:

An employee loses group coverage on Aug. 1. On Sept. 10, he or she enrolls in an exchange plan, with coverage to start on Oct. 1. On Sept 10, he or she also opts for COBRA, with coverage retroactive to Aug. 1. Retroactive coverage is permitted under COBRA. Then on Sept. 30, the individual drops COBRA, with the exchange coverage starting Oct. 1 and avoiding a gap.

“This gives individuals an additional window for coverage,” said Rich Stover, a Buck Consultants principal in Secaucus, New Jersey.

The approach also could be appealing to those who already have met their health plan deductibles for the year, or want to ensure they can stay with their current doctor. Those individuals could keep their COBRA coverage for a limited period and then move over to an exchange plan.

Meanwhile, the availability of the federal premium subsidies for exchange coverage could lead to curtailment of a plan design in which employers, as part of a severance package, pay COBRA premiums for several months for employees they let go.

Instead, Andy Anderson, a partner at Morgan, Lewis & Bockius L.L.P. in Chicago, said an employer would give those individuals a cash lump sum, which could be used to pay for COBRA or exchange premiums.

That approach could be cost-effective for employers if the individuals opt for exchange plans, since COBRA beneficiaries tend to be heavier users of health care services than other individuals. A rough rule of thumb, consultants say, is that for every dollar COBRA enrollees pay in premiums, they incur $1.50 in health care costs.

“This deals with the adverse selection issue,” Mr. Anderson said.

While some experts had said public exchanges under the health care reform law would lead to the end of COBRA coverage, that view is fading.

“COBRA will continue to be a health coverage alternative,” said Bruce Richards, individual insurance exchange leader at Mercer L.L.C. in Richmond, Virginia, noting, for example, that exchange premium subsidies are available only to those with incomes of up to 400% of the federal poverty level.

“COBRA will not disappear,” Mr. Anderson said.

“The rumors of COBRA's demise are somewhat overstated. It still will have a role in filling gaps in coverage,” said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington.